Discussions on the introduction of multi-issuer covered bonds in Italy could be finalised in the coming days, according to a department head at the Italian ministry for infrastructure and transport, while another source said the option of Cassa Depositi e Prestiti issuing covered bonds using mortgages originated by smaller Italian lenders has been floated.

Domenico Crocco

The proposal to introduce multi-issuer covered bonds in Italy was put forward by the Associazione Nazionale Costruttori Edili (national builders association), and official discussions started on 1 February when the association met with the Italian minister for economic development, the Italian Banking Association (ABI) and Cassa Depositi e Prestiti (CDP), the Italian state-managed financial institution.

Domenico Crocco, department head at the Italian ministry for infrastructure and transport, told The Covered Bond Report that the Italian minister for economic development, Ance, ABI, and CDP held a second meeting to discuss the proposal of introducing multi-issuer covered bonds in Italy.

“A third meeting is likely to take place in the coming days,” he said, “This would be the last meeting, during which the initiative could be finalised. After that, the initiative could be launched. No legislative amendment is required.”

Crocco said that CDP expressed its interest and availability to invest in multi-issuer covered bonds. CDP would participate in a multi-issuer OBG deal as an anchor investor, committing to buy a part of the issuance, and this could promote issuers’ interest in participating in the initiative, he said.

Another official familiar with the discussion told The CBR that another structure for multi-issuer issuance is been promoted by one of the institutions participating in the discussion, which would involve Italian banks transferring mortgages to an SPV, which would then be used by CDP to back OBGs issued under its name. The funds collected would then be allocated to the participating banks according to the amount of assets they had transferred to the SPV.

CDP has previously issued covered bonds but under legislation governing the state institution rather than under OBG legislation. The last of these, backed by public sector assets, was fully redeemed on 31 January.

According to the official, the initiative would allow small institutions that do not have the strength to sustain a covered bond programme in the long run to use the financial instrument to collect funding at lower costs. The mediation of the CDP would also be beneficial in terms of rating uplift.

Crocco said that multi-issuer OBGs issuance would not only concern Italy’s smaller credit institutions, but could also involve the country’s national champions.

The other official said that Italian national champions’ OBG deals usually benefit from strong investor demand so those issuers do not need the support of CDP. However, he noted that given the current unstable political situation, major Italian issuers’ access to the capital markets could deteriorate and they could then be interested in participating in multi-issuer OBG transactions.

Fitch cut Italy sovereign rating from A- to BBB+ on Friday, citing the inconclusive outcome of the 24-25 February elections as one of the driver of the downgrade, on the background of a recession that is “one of the deepest in Europe”, and rising gross general government debts.